WSW: Louis Rukeyser's Wall Street Summary & Discussion $treet

» SteveT - 5-9-03

Lou Holland is looking for a correction in the next month or so that could give back half the gains realized since the October 2002 lows. He is predicting by year-end gains to be around 20%. Holland would buy Pfizer (PFE) and Watson Pharmaceuticals (WPI).

Laszlo Birinyi has a positive outlook after a nice rally today on tepid news from Intel and the telecom sector. He did say we are ripe for a correction and that would add some normalcy to the market. He would never recommend being out of the market entirely but would be cautious buying now. Laszlo currently likes Dow Chemical (DOW), Texas Instruments (TXN), Verizon (VZ) and Berkshire Hathaway (BRKa). He would sell some financials, particularly brokerage stocks.

Brian Rogers says the market has been strong and he has no reason to believe he can predict a short-term pullback. Rogers admits we have come along way since last Fall and does expect some bumps. Adding there is a lot of pent up demand for equities after the past three years. Brian thinks the news will get better as the year progresses. He likes Boeing (BA) and Bristol Myers Squibb (BMY). He would sell gold and homebuilders.

Lou did reveal a new service on his web site. On Mondays after each show the site will post the recommendation of the panel. So if I missed a few be sure to stop by and check it out. You can also hear replays of his opening commentary. http://www.rukeyser.com/tvshow/index.asp

Lou then introduce special guest Ed Hyman Chairman of ISI group. Lou spent a great deal of time requesting predictions from Ed. They are as follows; lower inflation over the next 6-12 months, possible deflation to follow but that is not necessarily bad. We could see a period of falling prices and economic growth like occurred during the industrial revolution of the 1800’s. This opens the door to low rates from the FED. His views on bonds are neutral, he is unsure if they will sell off after a strong period or rates will go lower in the near term. Ed is upbeat on stocks saying earnings should increase 20% by the second half of this year. The market move we have enjoyed has been in anticipation of a stronger economy. Higher oil prices prior to the war did hold back the recovery but not that oil is down this will help the economy grow in the second half of 2003. GDP should finish the year at 4.5% and be around 3% next year. Unemployment could move a little higher and inflation should remain about 1.5% this year. Hyman thinks higher unemployment could marginally help the Bush administration as they will focus more on making the economy a lot better going into an election year. He can’t understand the notion a tax cut wouldn’t help. He reminded us we still have $1.5 trillion in tax cuts coming over the next several years. The Dollar decline has been orderly and does not see it collapsing since there is nothing to take its place. His views on the Dollar are positive saying it looks like the 1985-6 period. That was a good time for the markets and the economy. He thinks the strong Euro of late is mostly a technical move.

Lou Holland asked Ed his views on International markets. He thinks it is hard to see Europe or Japan out performing the U.S. Asia Ex –Japan and perhaps Russia could out perform all developed markets. They use a great deal of industrial commodities so look for the commodity prices to increase. Laszlo asked if it was bothersome or significant that the last recession was not officially over. Not at all, it is labeled officially over when there is no doubt and long after the fact. We have had six Quarters of growth, earnings are up 13%, and more important nominal revenues are up more than 10%. Brian asked when capital spending will pick up. Ed said it has some and there are profits there to keep it going. He sees in 2004 a strong economy and said capital spending will “come in”. Strength in housing suggests a consumer that is more optimistic than many economists think they are. They also have been increasing cash in savings and money market accounts. This should lower inventories that will need to be replaced.

Hyman thinks we are having a economic bounce that will slow slightly next year. He thinks free trade is the right way to go and the U.S. exporting jobs and importing cheap goods from Asia is a non-issue, saying it is great for the World economy. His final words were “You have never seen an economy die without the FED tightening significantly once it started a recovery”.

Next weeks special guest will be Greg Forsythe, Equity Model Director Charles Schwab. The panel will be Frank Cappiello, Mary Farrell, and Kim Goodwin.

-- posted by SteveT

» SteveT - Sorry

-- posted by SteveT

» Kirk - Re: Sorry

oh no! I went windsurfing and didn't set mine either....

at least the wind was fun and the waves on the Bay were HUGE!!!

-- posted by Kirk

» SteveT - 5-23-03

John Kim is more bullish than he has been in years. He thinks many factors are coming together culminating with the tax cut passed Friday. Other factors are low interest rates, a weakening Dollar helping Multinational company earnings, and a continuing strong consumer. Kim sees 10 or 15% gains in the stock market by year-end. Stocks he likes now are Altria (MO), Amvescap (AVZ), and T. Rowe Price (TROW). He would lighten up on Treasury bonds in favor of dividend paying stocks.

Liz Ann Sonders is more bullish than she has been lately. She believes the market is looking stronger than it did coming off the lows last July and October. Both volume and breath are strong and first Quarter earnings are better than anticipated. Add to that economic and fiscal stimulus along with investors starting to look forward instead of worrying about the past. Sonders likes the Energy refiners Sunoco (SUN) and Valero (VLO). She would also look at Telephone Utilities with strong fundamentals like SBC Communications (SBC) and Sprint PCS (PCS). Liz Ann would sell Electric Utilities dividend paying stocks with weak fundamental such as Duke Energy (DUK) and Northeast Utilities (NU). She would trim positions in U.S. Treasuries.

Bob Stovall says we are not out of the bear market yet. He is worried by excess optimism and thinks we are in a secular bear market. He does admit in the short term the market can go higher. But first he wants to see how the market handles the seasonal weak period of May and June. Bob does like Microsoft (MSFT), Pitney Bowes (PBI) and the Health Care Spyder. I am not sure which one he was talking about maybe (IYH). To see if my guess is right check Lou’s web site next week for all recommendation made on the show at http://www.rukeyser.com/tvshow/guestsnpa...

Then Lou introduce special guest John Bogle, Senior Chairman and Founder of the Vanguard Group. I am sure most of you know John has been a tireless advocate for Index Funds, improved corporate governance, and mutual fund shareholder rights. He always inspires me personally. Today John doesn’t see much change in Mutual fund industry attitude. Recently he was encouraged that the SEC overruled the industry and will require funds to disclose the way they voted on proxies. But he would have been happier if they would have all done it voluntarily. Bogle does not think we need more rules to separate brokerage sales departments from research, what we need is a rebirth of integrity. There is plenty of blame to go around but much of it lays with the owners of corporations themselves. Small investors can have some effect on things if enough of them speak out, but institutional investors are the key to change. They need to focus on being long term investors and demand improved corporate governance. That is not so easy to do with an average holding period of 11 months. Most often stocks owned at one annual meting are not at the next. As a result the institutions care little about corporate governance.

John Kim asked if with low bond yields Bogle would change his historic views for a balanced allocation. No he is a stay the course kind of guy. Bogle expects over the next ten years stocks to return about 8% annually and bonds around 4.5%, the risk premium is normal so he sees no reason to change. One concession he would make is to lighten up on long term bonds. Liz Ann stated in the late 90’s investors got away from passive investing in favor of individual issues. She wanted to know if that trend was waning. Yes, statistics show that is happening. Index funds now account for 14% of Mutual fund assets and are beating 80% of actively managed funds over the past year by about 4%! Bob noted fund holders maybe opposed to the compensation packages of executives of the companies the fund owns but tolerate the high salaries of fund managers and wanted John’s views on that issue. Bogle said fees have gotten out of hand. It is vital we get fund directors to stand up and be counted. Many are patsies for the fund company. He would like to see a law that the chairman of the fund can no longer be the chairman of the management company.

Lou finished by asking what other one change Bogle would like to see implemented. Make it a requirement that investors be allowed to make business proposals and nominate directors via proxy statements. I must say I hope I do see the day the changes Saint John is advocating come to pass. It can only make things better. It won’t be easy but it is up to all of us to do our part when ever the opportunity arises. My favorite Bogle quote is “Press on Regardless.” It is true in investing as well as most any area of daily live.

Next weeks special guest will be Andy Pilara Manager RS Partners fund. The panel will be Rich Bernstein, Ed Brown, and Gretchen Lash.

-- posted by SteveT

» Kirk - Re: 5-23-03

Thanks Steve. This is an interesting comment he made:

Index funds now account for 14% of Mutual fund assets and are beating 80% of actively managed funds over the past year by about 4%!

I heard that and was opening my mail at the time from Vanguard and I pulled out their "Performance Profile" for all their funds. Either Vanguard is very good or Bogle was wrong. It shows their index fund lost 24.80% in the last 12 months ending 3/31/03 and a quick look would only have 20% of the funds losing 4% more than this, not 50% of them.

It does look like that from the funds at Vanguard with a 10 year history, the index fund is in the top quartile. I'd be curious to see an actual study on this if anyone has it.

-- posted by Kirk

» Kirk - May 9, 2003: Hyman, Birinyi, Holland & Rogers

Panelists:

Laszlo Birinyi, Global Trading Strategist, Deutsche Bank
Recommended:
1. Dow Chemical (DOW)
2. Verizon (VZ)
3. Berkshire Hathaway (BRK)
4. Texas Instruments (TXN)

Lou Holland, Chief Investment Officer, Holland Capital Management
Recommended:
1. Pfizer, Inc. (PFE)
2. Watson Pharmaceuticals Inc (WPI)
3. Willis Group Holdings (WSH)

Brian Rogers, Portfolio Manager, T. Rowe Price Group
Recommended:
1. Boeing (BA)
2. Bristol Meyers (BMY)
3. Stanley Works (SWK)

http://www.rukeyser.com/tvshow/guestsnpa...

-- posted by Kirk

» Kirk - May 16, 2003: Greg Forsythe, Charles Schwab

May 16, 2003
Special Guest:
Greg Forsythe, Equity Model Director, Charles Schwab
Recommended:
1. Aetna (AET)
2. Black and Decker (BDK)
3. Nextel (NXTL)
Panelists:

Frank Cappiello, President, McCullough, Andrews & Cappiello
Recommended:
1. Southern Company (SO)
2. Ishares Msci Japan Index FD (EWJ)
3. UnitedHealth Group Incorporated (UNH)

Mary Farrell, Senior Market Strategist, UBS PaineWebber
Recommended:
1. Estee Lauder (EL)
2. Citigroup (C)
3. Apache (APA)

Kim Goodwin, Chief Investment Officer, State Street Research
Recommended:
1. Tiffany (TIF)
2. Univision (UVN)
3. Allergan (AGN)

-- posted by Kirk

» SteveT - 6-6-03

Ed Brown feels better about the market than he has all year. Not only because it is up but also because it has lots of good fundamental underpinnings to support it. Confidence is good, interest rates are likely to be stable or even drop, and the tax cut will help. Ed thinks the administration got more there than they expected. Brown would buy American International group (AIG), HCA Inc. (HCA), and AmerisourceBergen Corp. (ABC).

Barbara Marcin says the recovery is improving. The past couple months economic surprises have been to the up side. The P/E of the broad market is about 17 based on 2004 earnings. She thinks that is justified due to low interest rates. Marcin expects earnings to improve the second half of this year. Barbara likes NiSource (NI), Bristol-MyersSquibb (BMY), JP Morgan (JPM), and SBC Communication (SBC). All have nice dividends and you will be paid to wait while the economy and earnings improve to support the valuations.

Beth Dater is glad to see the market is starting to stem its losses. Saying nothing goes straight up we maybe in a trading range. Beth does think now is a great time to position a portfolio for the future. She likes Dollar Tree (DLTR), Wild Oats Market (OATS), Amdocs (DOX), and Crown Holdings (CCK). Dater would lighten up on some of the Biotechs saying they might be a little ahead of themselves.

Lou then introduced Special guest Francois Trahan, Chief Investment Strategist Bear Stearns. Francois stopped being bearish last November, even though his year end S&P 500 target has been eclipsed that does not necessarily mean it is down from here. The decline in long-term interest rates has surprised him. Future stock market growth is going to be muted compared to the 1980’s and 90’s in his estimation. Back then we had rising earnings and P/E multiple expansion fueled by falling rates to propel the markets, now all we pretty much have is earnings growth. Trahan is expecting earnings and the stock market to grow about 5%-7% annually for the foreseeable future. His current allocation is 60% stocks and 25% fixed income. Stocks he would buy now are large cap cyclical services companies that have gained market share in the downturn. Some examples would be Omnicom (OMC), First Data (FDC), and Apollo Group (APOL). The sub par recovery is really no surprise since we had such a shallow recession. Francois says the bear market is definitely over and for now the easy money has been made. He went on to say the bull has been running lately but he thinks it will start jogging pretty soon. A pull back would not surprise him and in fact he believes it would be healthy. The technical indicators he looks at say the market is over bought.

Ed noted value has done better than growth the past three years and wanted to know when that might change. Trahan said the bubble has been deflated and would not be surprised to see growth perform well. One of the best ways for a company to become a grower is to gain market share. Barbara asked when capital spending will pick up. It may not do well for an extended period of time. Normally the second year of a recovery capital spending carries GDP, He doesn’t think that will happen this time due to excess capacity. Francois doesn’t see that improving until capacity utilization improves. Beth asked if there was a period in history that might compared to what is happening now. The investment climate and economy are similar to the early 1960’s.

Lou asked if he were to increase equities would be lighten up on bonds to do so. Yes, he thinks there is lots of risk in bonds and people in them are playing for pennies. For those that need income consider dividend paying stocks yielding greater than 10-year treasuries. Lou asked what would turn him into a raging bull. Either stronger than expected earnings or multiple expansion, neither is very likely. Lou then asked what would turn him into a raging bear. A double dip recession or retraction in earnings, again neither is very likely. The bubble is over and valuations returned to pre bubble levels last Fall according to our guest. Trahan said it makes sense that small stocks have done well but does not expect than trend to continue. He is looking for large stocks to reestablish their dominance the last half of 2003.

Next weeks special guest will be a Jason Trennert, Senior investment strategist ISI group. The panel will be Alison Deans and Frank Gannon. And I guess a panelist to be named later.

-- posted by SteveT

» Kirk - Re: 6-6-03

Thanks for the summary Steve.

I thought it was interesting that Lou said that the Nasdaq was already higher than 8 of his regulars predicted for the top for all of 2003. I think two of the three panelists last night admitted it was higher than they predicted. This just goes to show how pessimistic most are when the market is down just like they were all overly optimistic when the market was near a peak in 2000. Nothing wrong with being wrong, but it is interesting that so many are wrong in the same direction and it correlates well with market level.

I wish there was a way to judge sentiment of the panelists along the lines of what stocks they are recommending. I still see VERY, VERY few on TV recommend Stocks. Most are like Cramer on CNBC and recommending dividend paying stocks so you get the dividend even if the market crashes lower as they think the market will then go higher and you are ahead of cash over the cycle.

Of the stocks recommended by the panelists and guest, there is not a tech stock in the bunch!

Some might call SBC a tech stock but it is just "the phone company" that pays a 4.07% dividend. Some of us think that the phone company could be put out of business with "wireless everywhere" where you can use your wireless internet service as a phone connection. A dying industry has to pay a 4.07% dividend to get you to sell your tobacco or asbestos stocks and invest in an industry you hope dies a much slower death and keeps paying the dividend.

So… there really is not a tech stock on the whole list mentioned. Compare that to March 2000 shows when Liz Ann Sonders was gushing about Exodus and Veritas or Henry Kim was all over the new era stocks with little mention of diversity to banking stocks, value stocks, etc…

As long as we have people like Lou's guests and panelists that are "paid" when folks own stocks recommending conservative stocks, I doubt we are close to a major market top.

As long as folks like our JackS (who just sent me an email asking about preferred stocks. I said POST THE QUESTION!) are asking about dividend payers rather than growth stocks, I doubt we are close to a major market top.

  Date       Kirk    S&P500   Delta
2003 YTD    +27.1%   14.0%    13.1%  as of 6/5/2003 
 
                              Kirk   S&P500+   NASDAQ 
4+ Yrs 12/31/98 to 06/5/03    94.9%  (13.9%)  (23.4%) 

+with dividends reinvested.

-- posted by Kirk

» snowchief2 - Rukeyser Interviewed

Today I received my edition of the "old man" publication a.k.a. the AARP Bulletin. On page three you will find Louis Rukeyser interviewed by Walt Duka. The name of the article is: Tide Is Turning. Lou sees the stock market as a smart bet now.

Upon reading I believe you'll find he nearly mirrors the views of the much maligned and villified Bob Brinker. Will they both be wrong?

You should be able to access it at www.AARP.ORG/BULLETIN. Enjoy!

The Chief

-- posted by snowchief2